The first of two reasons I am very sad about the Brexit vote: direct consequences

I’ve spent most of the last week in a daze, compounded of equal parts bafflement, fury, simple tiredness (I was up until 5am on referendum night and only slept a few hours) and most of all, sadness. Really, I was good for nothing for most of the week. It was all I could do to get my “keep calm and carry on” post written.

As the dust begins to settle, I think I’ve started to process my thoughts enough to at least understand why I feel so devastated. For my own benefit, if no-one else’s, I think it’s going to be helpful for me to separate out two quite distinct strands. I hope it’s of use to some others, too.

This time, I am going to look at the immediate consequences of the vote.

Pretty much without exception, all of the dire Brexit consequences that were spelled out by Leave’s despised experts have come to pass, or are in the process of happening. These are very bad things that are going to have significant implications for everyone in Britain. Here are some of the key ones.

Fall in the pound. Since the referendum, the fall in the pound has stabilised, but at a level of $1.35 compared with $1.47 before the vote. Why does this matter? If you run an export import business, everything you sell is now worth 8% less than it was before. For plenty of businesses, that’s the difference between survival and extinction. (Also: this.)

Loss of credit rating.The UK has had its credit rating downgraded by Standard & Poor and Fitch. Why does this matter? It means that the government will be paying higher interest rates on the deficit, which translates directly into less money for public spending. In other words: deeper cuts and more prolonged austerity — as usual, targeting our most vulnerable people.

Loss of foreign investment. Siemens has frozen its plans to invest in UK wind farms, Virgin’s Chinese partners are withdrawing investment, and there are more such announcements all the time. Why does this matter? Foreign Direct Investment is central to the UK’s economy as a whole, and drives GDP growth. That directly affects everyone’s income. [John Van Reenen, director of the Centre for Economic Performance at the London School of Economics, estimates that we’ll lose about £10 billion of the present £44 billion per year, resulting in household income falling by about 3.4%, or £2,200 per household. Obviously this is just an estimate: the exact amount of the damage remains to be seen. But it’s clearly real.]

Loss of access to European funding. We are likely to lose access to the European Investment Fund, which provides 40% of all UK startup funding. UK academics are already being squeezed out of collaborative grant applications because of the uncertainty about their eligibility. Why does this matter? Startups are an increasingly important part of the modern economy; and Britain’s position as a leader in research will be eroded by our exclusion from collaborative projects.

The rise of racism. This is one that no-one predicted — not even the experts that Michael Gove holds in such contempt. Reported racist incidents have increased by 57% since the referendum result was announced. The police have called emergency meetings. The government has had to announce special funding to address it (though it’s not clear to me how money can solve this problem). Why does this matter? I’m sure I don’t need to explain this one.

Notice that these are just the things that have already happened. Talk from the Leave campaign about “Project Fear” has immediately proven completely wrong as — surprise — the experts were right about nearly everything.

What does this mean for the future? We can’t know for sure, but once more, we’re back in the hands of the experts that Gove told us not to listen to. And what they have to say is not at all comforting. See for example this series of 24 tweets from Alex White, Director of Country Analysis at the Economist Intelligence Unit. Basically, we’re headed for another recession — which, assuming the Conservatives stay in power and even probably if they don’t, will be addressed by a further round of austerity. (You can bet it won’t be addressed by tax rises.)

All of this, plus the probable loss of Scotland, which will break away from the UK rather than be forcibly torn out of the European Union. And the very real possibility of Northern Ireland also seceding, and very likely the resumption of The Troubles as barriers are reintroduced between Northern Ireland and Eire.

Why am I going on about this?

Because I am sick of people telling me just to get over it, that Britain has been through worse, that it’ll all be OK. Yes, the country will survive — just as it survived World War 2. But there will be individuals who do not, just as there were individuals who did not survive World War 2. People already on the economic edge will be pushed over. Those who have to choose between food and heating will make their choice. They won’t all make it. And those who do will have their quality of life downgraded.

This stuff matters. I’m sensible to the call to be positive; and I generally try to be. But no purpose is served by pretending that reality isn’t real — that this isn’t an economic and social train-wreck. It is.

5 responses to “The first of two reasons I am very sad about the Brexit vote: direct consequences”

Just a nitpick: The fall in the pound is, in general, good for exporters (because now their goods are cheaper for foreigners to buy) and bad for importers (because everything just became more expensive). It’s only bad for exporters insofar as they might have to buy imports with the pounds they receive for their exports, but in normal circumstances that would be more than made up for by the fact that they’re now selling more goods (because they’re cheaper for other countries to import).

Of course that little bit of nice macro auto stabilisation will be hampered by brexit, because Britain now has to renegotiate a fuck ton of trade deals before they can export to a whole bunch of their biggest trading partners. And the deals they get will probably not be as good as the ones they currently get while in the EU.

Argh. Another one. Credit rating downgrades for countries with sovereign currencies very rarely lead to them paying higher interest rates. In fact I can’t think of an instance where that’s happened in the last 10 years. As a general rule if you have a sovereign currency (as Britain does) the shittier the economy is doing, the lower the interest rates the government pays on debt.